TPP add-on aims to address Congress concerns over FX manipulation
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Foreign Exchange

TPP add-on aims to address Congress concerns over FX manipulation

The Trans-Pacific Partnership (TPP) has been criticised in the US for ignoring the question of currency manipulation. The US Treasury hoped it could appease those concerns with a joint declaration by the countries involved, pledging to avoid such practices – but critics look far from convinced.

Hillary Clinton-R-600

Hillary Clinton opposed the TPP in October, citing a lack of criteria dealing with currency manipulation 

The countries that are signatory to the TPP have issued a joint declaration and pledge to “avoid unfair currency practices and refrain from competitive devaluation”, according to a statement issued by the US Treasury.

The declaration states that TPP countries – the US, Canada, Japan, Australia, Singapore, New Zealand, Malaysia, Brunei, Vietnam, Chile, Mexico and Peru – will avoid manipulating exchange rates to gain an unfair competitive. Fears over currency warshave raged since 2010.


 A definition of currency manipulation can be found easily enough

Scott Paul,

Alliance for American Manufacturing

TPP countries will take policy actions to foster an exchange-rate system that reflects underlying economic fundamentals, avoiding persistent exchange-rate misalignments, and refrain from competitive devaluation and targeting exchange rates for competitive purposes, it says.

The joint declaration is intended to promote macroeconomic cooperation between countries that are signatory to the TPP. It recognises “the diversity of economies in the TPP region and the differences in their levels of development”, which necessitates some differences between macroeconomic policies, the primary purpose of which is to meet domestic objectives.

However, the declaration states that “allowing real exchange rates to adjust in line with economic fundamentals facilitates smooth macroeconomic adjustment, helps to avoid prolonged external imbalances, and promotes strong, sustainable and balanced global growth”.

It is therefore committed to promoting “transparent exchange-rate regimes that allow real exchange rates to adjust to reflect underlying economic fundamentals”.

Critics have been quick to point out the agreement lacks any provisions by which it can be enforced. Some in the US are concerned that formally labelling a trading partner as a currency manipulator risks encouraging Congress to formulate reciprocal duties on imports from that country.

This is the approach some advocates of a more enforceable agreement support.

Naming and shaming

Instead, the declaration is an attempt to use a “naming and shaming” approach, to dissuade countries from using currency manipulation as a means to gain a competitive advantage in trade, to avoid a general descent into beggar-thy-neighbour trade policies and protectionism.

Michael Klein, professor of international economic affairs at the Fletcher School, Tufts University, and former chief economist in the Office of International Affairs of the US Treasury, believes this is a rational approach.

“Naming and shaming is an important part of foreign relations,” he says. “There are very few bodies that go further than this, like the World Trade Organization (WTO). It is hard to see how an agreement like this could go any further in terms of making it enforceable.”

One problem often cited in producing a more comprehensive and enforceable set of rules on currency manipulation is one of definition. One country’s manipulation, the argument goes, is another’s macroeconomic stimulus. Even quantitative easing (QE), it could be argued, was a form of currency manipulation, driving down the dollar and thereby boosting production.

Scott Paul, president of the Alliance for American Manufacturing (AAM), dismisses this argument, saying: “A definition of currency manipulation can be found easily enough by anyone who peruses the criteria as laid out by the IMF or the WTO.

“It involves the intervention by central banks in the purchasing of foreign-currency reserves, a persistent current-account surplus and frequent and direct intervention to devalue a currency by central banks. This offers plenty of flexibility to engage in macroeconomic policies. QE doesn’t qualify as manipulation under these tests, and in fact did much to create additional demand.”


Michael Klein,
Tufts University

Other than a reaffirmation of their adherence to a shared set of principles relating to the currency markets, the agreement specifically requires countries to provide a wide range of data within certain time frames. All TPP countries must provide its IMF Article IV staff report, including its exchange-rate assessment, and confirmation that it is participating in the IMF currency composition of official foreign-exchange reserves database.

Countries must also disclose monthly foreign-exchange reserves data, including forward positions, according to the IMF’s Special Data Dissemination Standard template, as well as data relating to domestic money stock and exports and imports.

Each must provide transparent information relating to intervention in spot and forward FX markets, and balance-of-payments portfolio capital flows, on a quarterly basis.

However, AAM’s Paul says: “The data will just add to the large body of reporting that is already available. It is just a reiteration, a repackaging. It does provide some timelines but these, like the other provisions, are not enforceable.”

TPP countries will also establish a group of ranking officials, to meet at least once a year, where any issues relating to the currency markets can be addressed and the macroeconomic and exchange-rate policies of each country, and “especially the effects of such policies on other TPP countries”, can be discussed. The group will publish reports relating to its discussions.

Paul sees the declaration as a missed opportunity, adding: “In the 1980s, trade agreements were all about tariffs and non-tariff barriers, and IP protections were highly controversial. Now they are normal. This was an opportunity to make a similar breakthrough in currency manipulation.”

Further reading

Trans-Pacific Partnership-R-160x186

Trans-Pacific Partnership to the rescue

Tufts’ Klein says: “The agreement is more political than macroeconomic, and no single clause in it really stands out. An important aspect of this agreement is to make it easier, politically, for the US to get TPP passed by Congress, and its value in this sense should not be underestimated.

“It will make countries think twice about currency manipulation, but, ultimately, if a country faces economic difficulties, this agreement will likely be ignored in favour of acting for domestic economic considerations.”

However, Paul doubts it will be any more effective in alleviating the concerns of Congress than it will be in discouraging currency manipulation.

“Around half of the Senate and half the House of Representatives – and maybe more – wanted these currency provisions to be enforceable,” he says. “For those that had deep concerns about currency manipulation, this is unlikely to change their minds.”

What it might do, worries Paul, is kill any further attempt to tackle the problem, by creating the illusion that is has already been resolved.

“The risk is this will undermine future efforts to tackle currency manipulation with something enforceable, using sanctions or other measures,” he warns. 

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